A loan shark is a person or body that offers unsecured loans An unsecured loan is a loan that is not backed by collateral. Also known as a signature loan or personal loan at high interest rates An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for deferring the use of funds and instead lending it to to individuals, often enforcing repayment by blackmail Blackmail is the crime of threatening to reveal substantially true information about a person to the public, a family member, or associates unless a demand made upon the victim is met. This information is usually of an embarrassing, socially damaging, and/or incriminating nature. As the information is substantially true, the act of revealing the or threats of violence Violence is the expression of physical or verbal force against self or other, compelling action against one's will on pain of being hurt. Worldwide, violence is used as a tool of manipulation and also is an area of concern for law and culture which take attempts to suppress and stop it. The word violence covers a broad spectrum. It can vary from.

Throughout history, usury Usury originally meant the charging of interest on loans. This included charging a fee for the use of money, such as at a bureau de change. After interest became acceptable, usury came to mean the interest above the rate allowed by law. In common usage today, the word means the charging of unreasonable or relatively high rates of interest. The laws made loan sharks commonplace.^{[clarification needed]} Many moneylenders skirted between legal and extra-legal activity. In the recent western world The Western world, also known as the West and the Occident , is a term that can have multiple meanings depending on its context (e.g., the time period, the region or social situation). Accordingly, the basic definition of what constitutes "the West" varies, expanding and contracting over time, in relation to various historical, loan sharks have been a feature of the criminal underworld Organized crime or criminal organizations is a transnational grouping of highly centralized enterprises run by criminals for the purpose of engaging in illegal activity, most commonly for the purpose of generating a monetary profit. The Organized Crime Control Act defines organized crime as "The unlawful activities of [...] a highly organized,, but are otherwise rare. Loan sharks are common in the UK The United Kingdom of Great Britain and Northern Ireland[note 7] is a sovereign state located off the northwestern coast of continental Europe. It is an island country, spanning an archipelago including Great Britain, the northeastern part of the island of Ireland, and many small islands. Northern Ireland is the only part of the UK with a land and among the Italian Italy (pronounced /ˈɪtəli/ ; Italian: Italia [iˈtaːlja]), officially the Italian Republic (Italian: Repubblica italiana), is a country located partly on the European Continent and partly on the Italian Peninsula in Southern Europe and on the two largest islands in the Mediterranean Sea, Sicily and Sardinia. Italy shares its northern, Alpine Cosa Nostra The Mafia is a Sicilian criminal society which is believed to have emerged in late 19th century Sicily, and the first such society to be referred to as a mafia (although it is not the first organized criminal society to appear in Italy). It is a loose association of criminal groups that share a common organizational structure and code of conduct^{[citation needed]} and Triads Triad is a term that describes many branches of Chinese underground society and/or criminal organizations based in Taiwan, Hong Kong, Singapore, Macau, Malaysia and Mainland China, and also in Western countries and cities with significant Chinese populations such as Paris, New York, Los Angeles, Seattle, Toronto, Vancouver, and the San Francisco in China China is seen variously as an ancient civilization extending over a large area in East Asia, a nation and/or a multinational entity.^{[citation needed]}

History

The phrase "loan shark" came into usage in the United States late in the 19th century The 19th century was a period in history marked by the collapse of the Spanish, Portuguese, Chinese, Holy Roman and Mughal empires. This paved the way for the growing influence of the British Empire, the German Empire and the United States, spurring military conflicts but also advances in science and exploration to describe a certain type of predatory lender Predatory lending is a pejorative term used to describe unfair, deceptive, or fraudulent practices of some lenders during the loan origination process. While there are no legal definitions in the United States for predatory lending, an audit report on predatory lending from the office of inspector general of the FDIC broadly defines predatory. The lenders to whom these epithets were applied charged high rates of interest and designed their credit products in such a way as to make orderly retirement of the debt difficult. Borrowers became trapped by their loans and were unable to pay off the principal. The interest payments dragged on and many borrowers became virtual debt peons The words peon and peonage are derived from the Spanish peón [peˈon]. It has a range of meanings but its primary usage is to describe labourers with little control over their employment conditions. As Cobleigh explains, "The real aim of loan sharks is to keep their customers eternally in debt so that interest (for the sharks) becomes almost an annuity The term annuity is used in finance theory to refer to any terminating stream of fixed payments over a specified period of time. This usage is most commonly seen in discussions of finance, usually in connection with the valuation of the stream of payments, taking into account time value of money concepts such as interest rate and future value."^[1]

Today loansharking tends to be associated in the popular mind with organized crime Organized crime or criminal organizations is a transnational grouping of highly centralized enterprises run by criminals for the purpose of engaging in illegal activity, most commonly for the purpose of generating a monetary profit. The Organized Crime Control Act defines organized crime as "The unlawful activities of [...] a highly organized,. The stereotypical loan shark is often thought to be a gangster who extorts repayment of the debt with threats of physical brutality. Such loan sharks do exist, but the first loan sharks were not linked to crime families and they did not beat up delinquent debtors. The phrase was originally applied to salary and chattel mortgage lenders who operated at the turn of the twentieth century. These creditors dealt in small sums (most loans were less than $100) and they charged high rates of interest (between 10% and 20% a month, and sometimes more). Many of these cash advances were interest-only and required a lump-sum payment to retire the principal. As a result, loans that were supposed to be short term often dragged on for months and years. To pay one lender, the debtor often took out another loan in a process that was called "pyramiding." The loan sharks frequently colluded in encouraging this expanding chain of debt.^[2]

To compel repayment, the first loan sharks secured their cash advances with chattel mortgages or wage assignments. A chattel mortgage entitled the lender to repossess Repossession is generally used to refer to a financial institution taking back an object that was either used as collateral or rented or leased in a transaction. Note that repossession is a "self-help" type of action in which the party having right of ownership of the property in question takes the property back from the party having household goods in case of default. A wage assignment gave the lender an enforceable claim on the debtor’s next wage payment. Because many employers at that time made it a policy to discharge employees against whom a wage assignment was filed, this instrument of security was especially effective in coercing debtors to keep making their payments.

Loan sharks tended to proliferate in big cities where there were large numbers of wage workers with regular paydays but modest salaries. These lenders operated out of cheap storefront offices and catered especially to government employees, factory hands, and office clerks. In the early decades of the twentieth century, it was estimated that one in five urban households in the United States borrowed from the loan sharks.^[3]

Newspapers after the turn of the century were filled with stories about the plight of debtors who were being mauled by the loan sharks. Before the First World War, a progressive coalition emerged to fight on behalf of these consumers. This fight culminated in the drafting of the Uniform Small Loan Law, which brought into existence a new class of licensed lender. The model statute mandated consumer protections and capped the interest rate on loans of $300 or less at 3.5% a month or the equivalent of 42% a year. Its aim was to establish a reputable class of lenders that could satisfy the demand of loan shark victims at a substantially reduced rate. The law was enacted, first in several states in 1917, and was adopted by all but a handful of states by the middle of the twentieth century.^[4]

Mafia links

Although the reform law was intended to starve the loan sharks into extinction, this species of predatory lender survived and evolved. After high-rate salary lending was outlawed, some bootleg vendors recast the product as "salary buying." They claimed they were not making loans but were purchasing future wages at a discount. This form of loansharking proliferated through the 1920s and into the 1930s until a new draft of the Uniform Small Loan Law closed the loophole through which the salary buyers had slipped.^[5] Salary-buying loan sharks continued to operate in some southern states after World War Two because the usury rate Usury originally meant the charging of interest on loans. This included charging a fee for the use of money, such as at a bureau de change. After interest became acceptable, usury came to mean the interest above the rate allowed by law. In common usage today, the word means the charging of unreasonable or relatively high rates of interest. The was set so low that licensed personal finance companies could not do business there.^[6]

Organized crime began to enter the cash advance business in the 1930s, after high-rate lending was criminalized by the Uniform Small Loan Law. The first reports of mob loansharking surfaced in New York City New York is the most populous city in the United States, and the center of the New York metropolitan area, which is one of the most populous metropolitan areas in the world. A leading global city, New York exerts a powerful influence over global commerce, finance, media, culture, art, fashion, research, education, and entertainment. As host of the in 1935, and for 15 years, underworld money lending was apparently restricted to that city.^[7] There is no record of syndicate "juice" operations in Chicago, for instance until the 1950s. In the beginning, underworld loansharking was a small loan business, catering to the same populations served by the salary lenders and buyers. Those who turned to the bootleg lenders could not get credit Credit is the provision of resources by one party to another party where that second party does not reimburse the first party immediately, thereby generating a debt, and instead arranges either to repay or return those resources (or material(s) of equal value) at a later date. It is any form of deferred payment. The first party is called a at the licensed companies because their incomes were too low or they were deemed poor risks. The firms operating within the usury cap turned away roughly half of all applicants and tended to make larger loans to married men with steady jobs and decent incomes. Those who could not get a legal loan at 36% or 42% a year could secure a cash advance from a mobster at the going rate of 10% or 20% a week for small loans. Since the mob loans were not usually secured with legal instruments, debtors pledged their bodies as collateral.^[8]

In its early phase, a large fraction of mob loansharking consisted of payday lending. Many of the customers were office clerks and factory hands. The loan fund for these operations came from the proceeds of the numbers racket and was distributed by the top bosses to the lower echelon loan sharks at the rate of 1% or 2% a week. The 1952 B-flick A B movie is a low-budget commercial motion picture conceived neither as an arthouse film nor as pornography. In its original usage, during the so-called Golden Age of Hollywood, the term more precisely identified a film intended for distribution as the less-publicized, bottom half of a double feature. Although the U.S. production of movies "Loan Shark," starring George Raft, offers a glimpse of mob payday lending. The waterfront in Brooklyn was another site of extensive underworld payday advance operations around mid-century.

Over time, mob loan sharks moved away from such labor intensive Labor intensity is the relative proportion of labor used in a process. The term "labor intensive" can be used when proposing the amount of work that is assigned to each worker/employee (labor), emphasizing on the skill involved in the respective line of work rackets. By the 1960s, the preferred clientele A customer, also called client, buyer, or purchaser, is usually used to refer to a current or potential buyer or user of the products of an individual or organization, called the supplier, seller, or vendor. This is typically through purchasing or renting goods or services. However, in certain contexts, the term customer also includes by extension was small and medium sized businesses. Business customers had the advantage of possessing assets that could be seized in case of default, or used to engage in fraud or to launder money. Gamblers were another lucrative market, as were other criminals who needed financing for their operations. By the 1970s, mob salary lending operations seem to have withered away in the United States.^[9]

At its height in the 1960s, underworld loansharking was estimated to be the second most lucrative franchise of organized crime in the United States after illegal gambling. Newspapers in the 1960s were filled with sensational stories of debtors beaten, harassed, and sometimes murdered by mob loan sharks. Yet careful studies of the business have raised doubts about the frequency with which violence was employed in practice. Relations between creditor and debtor could be amicable, even when the "vig" or "juice" was exorbitant, because each needed the other. FBI The Federal Bureau of Investigation is an agency of the United States Department of Justice that serves as both a federal criminal investigative body and an internal intelligence agency. The FBI has investigative jurisdiction over violations of more than 200 categories of federal crime. Its motto is "Fidelity, Bravery, Integrity", agents in one city interviewed 115 customers of a mob loan business but turned up only one debtor who had been threatened. None had been beaten.^[10]

Organized crime has never had a monopoly In economics, a monopoly (from Greek monos / μονος + polein / πωλειν (to sell)) exists when a specific individual or an enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it. (This is in contrast to a monopsony which relates to a on black market In modern societies the underground economy covers a vast array of activities. It is generally smaller in countries where economic freedom is greater, and becomes progressively larger in those areas where corruption, regulation, or legal monopolies restrict economic activity in various goods, services, or trading groups.[citation needed] lending. Plenty of vest-pocket lenders operated outside the jurisdiction of organized crime, charging usurious rates of interest for cash advances. These informal networks of credit rarely came to the attention of the authorities but flourished in populations not served by licensed lenders. Even today, after the rise of corporate payday lending in the United States, unlicensed loan sharks continue to operate in immigrant enclaves In political geography, an enclave is a territory whose geographical boundaries lie entirely within the boundaries of another territory and low-income neighborhoods. They lend money to people who work in the informal sector The informal sector is economic activity that is neither taxed nor monitored by a government, and is not included in that government's Gross National Product , as opposed to a formal economy or who are deemed to be too risky even by the check-cashing creditors. Some beat delinquents while others seize assets instead. Their rates run from 10%-20% a week, just like the mob loan sharks of yesteryear.^[11]

UK loan sharks

The research by the government and other agencies estimates that 165,000 to 200,000 people are indebted to loan sharks in the United Kingdom The United Kingdom of Great Britain and Northern Ireland[note 7] is a sovereign state located off the northwestern coast of continental Europe. It is an island country, spanning an archipelago including Great Britain, the northeastern part of the island of Ireland, and many small islands. Northern Ireland is the only part of the UK with a land. Loan sharking is treated as a high-level crime by law enforcement, due to its links to organized crime and the serious violence involved.^[12]

Non-standard lenders in the United States

In the United States, there are lenders licensed to serve borrowers who cannot qualify for standard loans from mainstream sources. These smaller, non-standard lenders often operate in cash, whereas mainstream lenders increasingly operate only electronically and will not serve borrowers who do not have bank accounts. Terms such as sub-prime lending Subprime lending in finance means making loans that are in the riskiest category of consumer loans and are typically sold in a separate market from prime loans. The standards for determining risk categories refer to the size of the loan, "traditional" or "nontraditional" structure of the loan, borrower credit rating, ratio of^{[citation needed]}, "non-standard consumer credit"^{[citation needed]}, and Payday loans A payday loan is a small, short-term loan that is intended to cover a borrower's expenses until his or her next payday. The loans are also sometimes referred to as cash advances, though that term can also refer to cash provided against a prearranged line of credit such as a credit card (see cash advance). Legislation regarding payday loans varies^{[citation needed]} are often used in connection with this type of consumer finance Consumer finance in the most basic sense of the word refers to any kind of lending to consumers. However, in the United States financial services industry, the term "consumer finance" often refers to a particular type of business, sub prime branch lending . This branch of the financial services industry is more extensive in the United. The availability of these products has made illegal, exploitative loan sharks rarer, but these legal lenders have also been accused of behaving in an exploitative manner. For example, payday loan operations have come under fire for charging inflated "service charges" for their services of cashing a "payday advance", effectively a short-term (no more than one or two weeks) loan for which charges may run 3-5% of the principal amount. By claiming to be charging for the 'service' of cashing a paycheck, instead of merely charging interest for a short-term loan, laws which strictly regulate moneylending costs can be effectively bypassed.

Payday lending

Licensed payday advance businesses, which lend money at high rates of interest on the security of a postdated check, are often described as loan sharks by their critics due to high interest rates that trap debtors, stopping short of illegal lending and violent collection practices. Today’s payday loan is a close cousin of the early twentieth century salary loan, the product to which the "shark" epithet was originally applied, but they are now legalised in some states.

A 2001 comparison of short-term lending rates charged by the Chicago Outfit organized crime syndicate and payday lenders in California revealed that, depending on when a payday loan was paid back by a borrower (generally 1-14 days), the interest rate charged for a payday loan could be considerably higher than the interest rate of a similar loan made by the organized crime syndicate.^[13]

Yamikinyu in Japan

The regulation of moneylenders is typically much looser than that of banks. In Japan, the Moneylending Control Law requires only registration in each prefecture The prefectures of Japan are the country's 47 subnational jurisdictions: one "metropolis" , Tokyo; one "circuit" (道 dō), Hokkaidō; two urban prefectures (府 fu), Osaka and Kyoto; and 43 other prefectures (県 ken). In Japanese, they are commonly referred to as todōfuken (都道府県?). Prefectures are governmental bodies. In Japan Japan is an island country in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south. The characters that make up Japan's name mean "sun-origin", which is why Japan is, as the decade-long depression lingers, banks are reluctant to spare money and regulation becomes tighter, illegal moneylending has become a social issue Social issues are matters which directly or indirectly affect a person, many or all members of a society and are considered to be problems, controversies related to moral values, or both. Illegal moneylenders typically charge an interest of 30 or 50 % in 10 days (in Japanese, these are called "to-san" ('to' meaning ten and 'san' meaning three) or "to-go" ('to' meaning ten and 'go' meaning five)), which is about 1800 % per annum. This is against the law that sets the maximum interest rate at 29.2 %. They usually do business with those who cannot get more money from banks, legitimate consumer loans, or credit cards.

Ah Long in Malaysia and Singapore

Ah Long (derived from the Cantonese phrase '大耳窿' (Jyutping: daai6 ji5 lung1) is a term for illegal loan sharks in Malaysia ^ b. The current terminology as per government policy is Bahasa Malaysia but legislation continues to refer to the official language as Bahasa Melayu (literally Malay language). English may continue to be used for some official purposes under the National Language Act 1967 and Singapore Singapore, officially the Republic of Singapore, is an island country off the southern tip of the Malay Peninsula, 137 kilometres north of the equator, in the Southeast Asian region of the Asian continent. It is separated from Malaysia by the Straits of Johor to its north, and from Indonesia's Riau Islands by the Singapore Strait to its south. A. They lend money to people who are unable to obtain loans from banks or other legal sources, mostly targeting habitual gamblers. They charge a very high interest rate (about 40% per month/fortnight)^{[citation needed]} and frequently threaten violence Violence is the expression of physical or verbal force against self or other, compelling action against one's will on pain of being hurt. Worldwide, violence is used as a tool of manipulation and also is an area of concern for law and culture which take attempts to suppress and stop it. The word violence covers a broad spectrum. It can vary from (and administer it) towards those who fail to pay in time. ^[14][15]

Many years ago, prior to the registration of mobile phone numbers in Malaysia, Ah Longs advertised their services merely by distributing their calling cards.

Ah Long tactics

When a person fails to pay in time, the Ah Long will spray, splash, or write threats in red paint on the walls of the house or property of that person as a threat of violence and to shame the borrower into repaying the loan. A common use of painting includes the characters "O$ P$" meaning "Owe money, Pay money". According to local police authorities, there have been cases where borrowers were beaten or had their property damaged or destroyed, and some victims have committed suicide. ^[14]

Pig heads are sometimes hung outside the borrower's house, as a type of intimidation as well as a way of 'marking' the person as a loan 'defaulter'.

Ah Longs sometimes break into victim's houses and steal items of the loans value. This method is commonly used to save time and also effort.^{[citation needed]}

Recent cases shows that Ah Longs also displays the borrower's identity card on a huge banner and post it on fences. Since Ah Longs need only an identity card from borrowers, this tactic is becoming common because it shames the borrower publicly into paying up.

Borrowers often use their outdated identity card to borrow money, with the intent to not pay what they owe. As a result, unsuspecting house owners end up paying the price of receiving the Ah Long tactics of intimidation. Since they are not the borrowers, the intimidation does not stop because the Ah Long will keep on harassing them.

Pacific loan sharking in New Zealand

In New Zealand, there is a vibrant industry in loan sharking in communities with large numbers of poor Pacific Island migrants (Mostly Samoan, Tongan, and Niuean migrants). Most of the migrants are likely to be unemployed or work menial jobs. Loan sharks have legitimate shops in commercial centres of poorer parts of Auckland and Wellington. These shops are often run by other Islanders or other immigrants (Indian and Chinese). Many people of other ethnicities use these shops too (usually poorer and more disadvantaged people) and the shops charge exorbitant amounts of interest (usually 30-200% a year and charge last documentation fees; registration fees; and, in one extreme case, $30 for a phone call. These sharks have been condemned for years but people use them as they are totally legal. They will get prosecuted only over producing badly worded contracts. Often borrowers can not speak English well, have no bank account, and can not understand the terms of their loan contract. Often, excessive penalties are charged even for slight defaults on payment. The result is people spend years and thousands of dollars paying off a loan that initially cost a few hundred dollars. The companies can be family run, and one Tongan company even shows photos of defaulters in the Tongan Newspaper as part of naming and shaming that is part of that culture. Huge church and social financial commitments (Such as loans for funerals) can make the moneylender a part of life. The New Zealand government is trying to pass legislation to make these companies not loan money to people who cannot pay it back. These companies also advertise extensively, and, in the worst case in 2007, people from a well known finance company went around from door to door in the poor suburb of Otara offering high interest cash loans.

Another component is offering securities. Often family heirlooms like shields, kava bowls and fine mats are security for small amounts, but larger loans can incur cars and even houses. The most extreme case being an Indian loan shark taking a house over for a default on a $900 loan.

Poor suburbs are littered with advertising and even well-known sub-bank companies use Pacific motifs in their advertising, offer easy terms, use poor spelling, and even jive talk.

See also

• Predatory lending Predatory lending is a pejorative term used to describe unfair, deceptive, or fraudulent practices of some lenders during the loan origination process. While there are no legal definitions in the United States for predatory lending, an audit report on predatory lending from the office of inspector general of the FDIC broadly defines predatory

References

1. ^ Ira Cobleigh, How and Where to Borrow Money (New York: Avon Books, 1964), p. 109.
2. ^ See Clarence Wassam, The Salary Lending Business in New York City (New York: Charities Publication Committee, 1908) and Louis Robinson and Rolf Nugent, Regulation of the Small Loan Business (New York: Russell Sage Foundation, 1935).
3. ^ Lendall Calder, Financing the American Dream: A Cultural History of Consumer Credit (Princeton: Princeton University Press, 1999), p. 118.
4. ^ David Gallert, Walter Hilborn and Geoffrey May, Small Loan Legislation: A History of the Regulation of Lending Small Sums (New York: Russell Sage Foundation, 1932).
5. ^ George Gisler and Joe Birkhead, Salary Buying in Kansas City, Missouri (Kansas City: Conference on Personal Finance Law, 1938).
6. ^ Victor Meador, Loan Sharks in Georgia (Washington, DC: American Bar Association, 1949).
7. ^ "27 Arrested as Usurers in Sudden Move by Dewey to Break Up Vast Racket," New York Times (October 29, 1935), p. 1.
8. ^ John Seidl, “Upon the Hip”—A Study of the Criminal Loan-Shark Industry, unpublished Ph.D. dissertation (Cambridge, MA: Harvard University, 1968).
9. ^ Peter Reuter, The Organization of Illegal Markets: An Economic Analysis (Washington, DC: U.S. Department of Justice,1985).
10. ^ Annelise Anderson, The Business of Organized Crime (Stanford: Hoover Institution Press, 1979), p.66.
11. ^ Sudhir Venkatesh, Off the Books: The Underground Economy of the Urban Poor (Cambridge, MA: Harvard University Press, 2006), pp.140-141, 399-400.
12. ^ Bahra, Parminder; Bennett, Rosemary (2009-08-07). "Loan sharks threats of violence forced family into prostitution". The Times (London). http://www.timesonline.co.uk/tol/news/uk/crime/article6742115.ece. Retrieved 2010-05-11.
13. ^ James, Stephen (19 July 2001). “The ancient evil of usury”. Sacramento News & Review (Sacramento, CA). Retrieved 6 March 2010.
14. ^ ^{a b} Don’t borrow from loan sharks
15. ^ Factory emptied, so loan sharks beat up owner

External links

• The money hole — an article about the loan shark problem in Japan.
• Stop Loan Sharks - UK Gov. initiative to stop loan sharks

Categories: Extortion | Banking

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• Loan Shark: Dictionary
• Loan Shark: Encyclopedia
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